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October 11

Business
Semester 201003

Accounting
DBS1008
201
2010/11 0
Submission Date: Thursday 9th Business
November 2010, Submit to the PDIC Accounting
Coursework
student office before 12 noon

Assignment
– 20010/11
Semester 201003

Module: DBS1008 -Business Accounting Coursework–


Assignment – 20010/11 :

Level 1

th
Submission Date: Thursday 9 November 2010, Submit to the PDIC
student office before 12 noon

Question 1 25 Marks Financial Ratios


WM Ltd is a company that manufactures shipping tools. It has been in business for a few
years. The following is the income statement and balance sheet of WM Ltd for 2008:

Income Statement for the year ended 31 December 2008

£ £
Revenue 2,300,000
Less Cost of Sales (1,137,500)
Gross Profit 1,162,500
Less Expenses
Wages 420,000
Rent 300,000
General expenses 310,000
Loan interest 5,000
Bad debts 12,000
Depreciation 64,000
(1,111,000)
Profit for the year 51,500
Retained profit brought forward 75,500
Retained profit carried forward £ 127,000

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Balance Sheet at 31st December 2008

£ £
Non-current Assets
Machinery at cost 320,000
Less Depreciation 85,000
235,000
Current Assets
Inventories 150,000
Trade receivables 215,000
Prepaid expenses (rent) 50,000
Cash at bank 87,500
502,500
Total Assets £ 737,500
Equity ( capital ) 350,000

Retained earnings 127,000


477,000
Non-current Liabilities
Long-term loan 100,000

Current Liabilities
Trade payables 160,500
£ 737,500
The following transactions took place during the following year ended 31st December 2009:

£
1 Sales of goods for the year, all on credit, totalled 2,800,000
(The goods had cost £1,500,000.)

2 Stock was bought during the year 1,700,000


(All purchases were made on credit.)

3 Premises rented at an annual rental of 300,000


During the year rent was paid totalling 250,000

4 General expenses paid during the year 350,000

5 Wages paid during the year 460,000

6 Bad debts written off during the year 10,000

7 Loan interest paid during the year amounted to 5,000

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8 Cash received from trade receivables totalled 2,450,000

9 Payments to trade payables totalled 1,200,000

10 The business uses the straight line method of depreciation at a rate


of 20% per annum.

You are required to:


(a) Prepare an income statement and a balance sheet for the year ended 30
September 2008 incorporating the above points.

Marks will be awarded for presentation.

(b) Calculate the following four ratios for 2008 based on the profit and loss account
and balance sheet provided in the question and for 2009 based on the accounts you
have prepared in (a):

Net Profit margin


Current ratio
Stock turnover
Debtor days
(c) Comment on the findings of your calculations in (b).

Question 2 (50 Marks) Financial statements


The following is the balance sheet of TT and Co at the end of its first year of
trading
TT and Co
Balance Sheet as at 31 December 2008
£
Non-current assets
Property, plant and equipment
Delivery Van at cost 12,000
Depreciation (2,500)
9,500
Current assets
Inventories 65,000
Trade receivables 19,600
Prepaid expenses * 5,300
Cash 750
90,650

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Total Assets 100,150

Capital
Opening capital 50,000
Retained Profit 26,900
76,900

Current liabilities
Trade payables 22,000
Accrued expenses 1,250
**
23,250

Total equity and liabilities 100,150

* The prepaid expenses consisted of rates (£300) and rent (£5,000).


** The accrued expenses consisted of wages (£630) and electricity (£620).
During 2009, the following transactions took place.

1. The owners withdrew capital in the form of cash of £20,000.


2. Premises continued to be rented at an annual rental of £20,000. During the year, rent of
£15,000 was paid to the owner of the premises.
3. Rates on the premises were paid during the year as follows: for the period 1 April 2007 to 31
March 2008 £1300.
4. A second delivery van was bought on 1 January 2007 for £13,000. This is expected to be used
in the business for four years and then to be sold for £3,000.
5. Wages totalling £36,700 were paid during the year. At the end of the year, the business owed
£860 of wages for the last week of the year.
6. Electricity bills for the first three quarters of the year and £620 for the last quarter of the
previous year were paid totalling £1,820. After 31 December 2007, but before the accounts
had been finalised for the year, the bill arrived showing a charge of £690.
7. Stock in trade totalling £67,000 was bought on credit.
8. Stock in trade totalling £8,000 was bought for cash.
9. Sales revenue on credit totalled £179,000 (cost £89,000).
10. Cash sales revenue totalled £54,000 (cost £25,000).
11. Receipts from trade debtors totalled £178,000.

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12. Payments to trade creditors totalled £71,000.
13. Van running expenses paid totalled £16,200.
The business uses the straight-line method for depreciating non-current assets.
Required:

Prepare a balance sheet as at 31 December 2009 and a P&L account


for the year to that date.

END OF THE QUESTIONS

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MAR200 Summary of Key Financial Ratios

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Type and name Format Formula

Profitability ratios
Return on Profit for the year less preference dividend if any
x 100
ordinary Ordinary share capital + reserves
shareholders’ %
funds (ROSF)
Return on capital Operating profit x 100

employed ROCE Share capital +reserves +non - current liabilitie s

%
Net profit margin Operating profit
x 100
Sales revenue
%
Gross profit Gross profit
x 100
margin Sales revenue
%
Efficiency (activity) ratios
Average inventory Average inventorie s held
x 365
turnover period da Cost of sales
ys
Average Trade receivable s
x 365
settlement period da Credit sales
for receivables ys
Average Trade payables
x 365
settlement period da Credit purchases
for payables ys
Sales revenue to n:n Sales revenue
capital employed Share capital + reserves + non - current liabilitie s
Sales revenue per Sales revenue
employee £ Number of employees
Liquidity ratios
Current ratio n:n Current assets
Current liabilitie s
Acid test ratio n:n Current assets (excluding inventorie s)
Current liabilitie s
Cash generated Cash generated from operations
from operations N:n Current liabilitie s
to maturing
obligations
Gearing ratios
Gearing Long term (non - current) liabilitie s
x 100
% Share capital + reserves + long term (non - current) liabilitie s
Interest cover Profit bef ore intere st & tax
time Interest p ayable
s
Investment ratios

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Dividend payout Dividends announced during the year
x 100
% Earnings f or the yea r availabl e for divi dend
Dividend cover tim Earnings for the year available for dividend
es Dividends announced during the year
Earnings per Earnings available to ordinary shareholde rs
share penc Number of ordinary shares in issue
e

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